Nearly two years after Kim Dotcom's New Zealand mansion was raided by police, US authorities have made their case as to why the man behind Megaupload shouldn't simply go bankrupt like previous copyright violators before have—he should go to jail, they argue.

In a 191-page "Summary of Evidence," (PDF) government lawyers marshal Skype chats, financial data, and dozens of e-mails to make their case that Megaupload was a criminal network designed from the start to distribute copyrighted material. It discusses the payments made to heavy uploaders to encourage them to drive traffic to the files of movies and TV shows they hid online.

Megaupload built a wall of plausible deniability, prosecutors claim, by disabling any internal search of files stored on Megaupload, meant as a "cyberlocker" site. But its administrators, who include the men behind Dotcom's new site Mega, traded e-mails that show the real strategy. They monitored and drove traffic to third-party linking sites through which Megaupload beamed its advertisements. They guided users about how to use the site in e-mails that clearly reference movies. Finally, and critically, they provided cash rewards to their best uploaders; in their e-mails they negotiated how to control such awards and get the most bang for their buck.

At one point, Megaupload officials discussed moving some pornographic content from Megaupload to Megarotic, which was Megaupload's racier sister site. They needed to explain the move to users, but it was complicated.

“[W]e could, however, also be shooting ourselves in the foot with this, as it proves that we looked at the file... and therefore are not the dumb pipe we claim to be," wrote Megaupload CTO Mathias Ortmann. "[C]opyright owners may use this against us."

Much of the information is likely what was gleaned from the servers that were copied, searched, and ultimately seized by US law enforcement. But prosecutors have also convinced several heavy users of Megaupload, identified so far only by initials, to testify against Dotcom and his comrades about how they used the system.

The purpose of the massive evidence dump is to get Dotcom extradited from New Zealand, where he has been wrapped up in legal proceedings for the 23 months since his mansion was raided. The US hardly got the quick handover they wanted—not only is Dotcom out of jail, he's free to do business. This year, he launched a new site simply called "Mega."

The next extradition hearing is scheduled for July 2014, and the evidence published Friday will be front-and-center in the government's case.

The government's 191-page "Summary of Evidence" also details the stunning sums that Dotcom and his colleagues made running their site. Dotcom, who owned 68 percent of Megaupload and all of sister site Megavideo, made more than $42 million in calendar year 2010. CTO Mathias Ortmann, who owned 25 percent share of Megaupload, made more than $9 million that same year; designer Julius Bencko (2.5 percent) made more than $1 million, and programmer Bram Van Der Kolk (also 2.5 percent) made more than $2 million. Chief Marketing Officer Finn Batato, who was not a shareholder, made $400,000. And no perk was too excessive: the company spent $616,000 renting Mediterranean yachts.

Megaupload lawyer Ira Rothken has said the document is being used to mislead the public.

"We think it’s 191 pages of meritless criminal allegations," Rothken told Variety. "The allegations seem to revolve around Megaupload’s discussed policies related to user infringements, takedowns, and things like reward programs. All those things are civil in nature and can never be considered criminal in the United States." At most, it's "secondary copyright infringement," he said—not a criminal matter.

Love means never having to say “delete”

It complied with the requests by disabling the specific URLs that pointed to accused files—all while keeping the actual infringing files undeleted and accessible

Megaupload was the storage side, while Megavideo was a site that allowed users to watch stored videos without downloading through an embedded Flash video player. The public fronts of both sites were scrubbed to look clean, but prosecutors allege that was all to hide the real strategy revealed in internal e-mails: getting users to find the content they want through third-party search sites then encouraging them to buy premium subscriptions by cutting off their viewing after 72 minutes of video: just enough time to not finish watching a feature film.

Megavideo also carried ads, but premium subscriptions were the main revenue source. The Mega sites together generated $25 million in ad revenue, but they're estimated to have received more than $150 million from premium subscriptions.

Like many sites, Megaupload was deluged with thousands of takedown requests from copyright holders. It complied with the requests by disabling the specific URLs that pointed to accused files—all while keeping the actual infringing files undeleted and accessible. Megaupload users could create many URLs pointing to their files, making it trivial to keep the files available. At the same time, Megaupload principals would send e-mails to copyright owners implying they had actually removed the files.

They also didn't terminate the accounts of "repeat infringers," some of whom had their content subject to tens of thousands of takedown requests.

Having set up a system that proliferated millions of links to forbidden content, Megaupload then complied with takedown requests—on a sharply limited basis. Dotcom set strict limits on how many files should be removed and scolded his subordinates if they removed too much.

In 2009, Ortmann e-mailed Dotcom about Warner Brothers' request for an increase in their "removal limit," which was set by Megaupload. "They are currently removing 2,500 files per day," wrote Ortmann. "A cursory check indicates that it's legit takedowns of content that they own appearing in public forums," meaning third-party link sites. "We should comply with their request—we can afford to be cooperative at current growth levels.

Dotcom OK'd the increase; Warner could take down 5,000 links per day but "not unlimited," he stressed.

But often, they wouldn't comply. Megaupload never deleted files, and sometimes Dotcom balked at even removing URLs. After getting an e-mail listing 6,000 links from a representative of "various copyright owners," including the big four movie studios and Sony BMG's Mexico division, Dotcom actually scolded his underlings for complying.

"I told you many times not to delete links that are reported in batches of thousands from insignificant sources," wrote Dotcom. "I would say that those infringement reports from MEXICO of '14,000' links would fall into that category. And the fact that we lost significant revenue because of it justifies my reaction."

“They have no idea that we're making millions”

“If copyright holders would really know how big our business is they would surely try to do something against it...”

Megaupload staff kept a clean facade, creating a "Top 100" list that consisted of movie trailers, game demos, and other legal content, but prosecutors maintain this was a sham to hide the truly popular content. Now, they've showcased some of the e-mails they captured to show there was a "wink wink, nudge nudge" attitude toward copyright violations on the site.

And some of the e-mails do look damning.

In March 2009, Dotcom asked Ortmann over Skype (in German): “Have you got a minute? Let’s talk about how we should prepare for lawsuits, should they ever happen.”

"We need to take a look at how YouTube has dealt with that so far," said Ortmann. "Promise some kind of technical filtering crap and then never implement it."

"We should already be hiring an attorney now, perhaps an in-house one, to get us prepared for anything," responded Dotcom.

Van Der Kolk was more explicit in his discussions with Ortmann. "yep :) the MU business model works very well for online video (private links)," he wrote. "Now we’re doing exactly what I foresaw in the beginning – innocent front end, private backend :)."

Two days later, he Skyped again to Ortmann: "If copyright holders would really know how big our business is they would surely try to do something against it... they have no idea that we’re making millions in profit every month." Ortmann responded, "Indeed."

The men who ran the Mega sites passed around customers' e-mails with reactions, complaints, and compliments, many of them mentioning obviously copyrighted content. For instance, in May 2009, Batato sent an e-mail to Ortmann with a customer note reading: "We watched Taken successfuly [sic] and then tried to watch the Alphabet Killer a day later and got the message to upgrade if we wanted to continue watching."

Another user in 2010 e-mailed Batato asking, "where can we see full movies?" Batato answered, “You need to go to our referrer sites. Such as www.thepiratecity.org or www.ovguide.com[.] There are the movie and series links. You cannot find them by searching on MV directly. That would cause us a lot of trouble ;-).”

In 2008, a user wrote directly to Dotcom complaining about video problems. "I’ve been trying to watch Dexter episodes, but... the sound doesn’t match up with the visual," he wrote. "I didn’t choose to use your site, you seem to dominate episodes 6 and 7 of Dexter on alluc[.org, a linking site]."

Dotcom forwarded the e-mail to Ortmann, writing: "on many forums people complain that our video / sound are not in sync... We need to solve this asap!”

In 2008, Van Der Kolk sent an e-mail to Ortmann entitled "funny chat log," showing an earlier chat in which Van Der Kolk had said: "we have a funny business... modern days pirates :)." Ortmann's response was a smiley-faced embrace of the gray area of the law he and his colleagues sought to occupy. "we’re not pirates, we’re just providing shipping services to pirates :)," he wrote.

In a 2007 Skype chat, Van Der Kolk had used the "modern pirates" in a different chat. "We're pretty evil, unfortunately," responded Ortmann. "but Google is also evil, and their claim is 'don't be evil.'"

"yes!" wrote Van Der Kolk. “the world is changing, this is the Internet, people will always share files and download their stuff for free... with or without Megaupload.”

So what's a copyright owner to do? Just join Megaupload, apparently. "the content providers should just get a producer account and sign up for rewards," quipped Ortmann.

So what if everything the feds say is true and most of it might be. Doing everything Dotcom did and being a "dumb pipe" are not mutually exclusive. You can be both and his operation was both. If I run a copy shop filled with copy machines, tape recorders and everything needed to make copies of things yes it is easy for criminals to violate the copyright law. But just because I run a business and I make it easy for criminals to use my service for criminal activity does NOT make me a criminal.

It's like a head shop in the 70's. Did they sell pipes, bongs, rolling papers, etc.? Yes. Was it used for criminal activity? Yes. Was the head shop illegal? No.

I just do not buy the whole fed argument. Proving that Dotcom made it easy for criminals does not make him a criminal.

If the people behind Megaupload willingly and willfully broke the law then they should burn for that, but you can't have justice built on injustice; this case has been marred by such travesties basically from day one.

Kim Dotcom, a well-known repeated scam artist, is on trial for his life here (or close enough to it anyway), but will any of the government actors who violated law and civil rights in their pursuit of him ever see their trials as well? What, who am I kidding. Of course they won't.

The law only applies to regular people - a sad state of affairs in our supposedly 'free' western society.

So let me get this Fed logic straight:* when a non-American company violates American law, its owner is criminally liable* when an American company on Wall St. violates American law, its owner isn't criminally liable* when the NSA violates American law, its director isn't criminally liable

What gets me is that, despite making 42 million a year, they still privately uploaded and shared copyrighted content. It's kind of amazing. With that kind of money I'd buy a house in the states with a tv (if "Lost" wasn't coming to New Zealand fast enough) and pay someone with some kind of time shifting or location shifting service. Or, hell just fly a dude back and forth on the frequent flier miles gotten from a weekly credit card use with a tivo in tow.

Before then, they could claim to not doing any of their own copyright infringement and just be bad at dmca enforcement.

The way I see it Megaupload was like a headshop. If I can buy a bong that's for 'tobacco use only' and not violate the law then Kim should be able to sell me a file locker for 'non copyrighted material' and not violate the law.

Hmm... so since advertisers paid Kim Dotcom fairly for advertisements placed on his website, and because subscribers paid for Megaupload premium, the fact that a few people uploaded copyrighted content to his sharing service means he has to go to trial? Especially when Megaupload had one of the most thorough and aggressive DMCA takedown policies of any locker site? Riiight. Makes perfect sense.

As an aside, every time there's a Megaupload or Kim Dotcom article on Ars, the commenters come out in droves to bemoan the coverage his issue gets. You guys really should be paying more attention instead of complaining. Whether you would want to hang out with the guy or be his friend or whatever is irrelevant. I've never met him and can say he seems like an eccentric and cocky prick. That's not why he's getting coverage, nor why it's important. His case is important in so many different ways (illegal search and seizure, the US government playing the part of MPAA and RIAA lackey, flagrantly disregarding the privacy of citizens of other nations, trying to abuse extradition agreements for simple matters of copyright disputes, etc etc). Just because you may not like the guy doesn't mean what's going on legally isn't very important.

I'm sure that this makes the RIAA/MPAA quite happy to see that after all these years we're still trying to prosecute this guy. I mean, they paid good money to lobbyists and Congress to see this thought. But, how many or our finite resources are being wasted here? How bad did the various government agencies screw up here? Exactly how far over the line of the rule of law did we step here in order to satisfy an industry?

I say in cases such as this, get the damn government out of this and let the MPAA/RIAA and affiliated industries foot the bill. Maybe that might change things a bit and move the entire industry to a more modern business model.

I love how the Feds have gone through so much trouble to prove that he most likely blatantly committed a ton of stuff completely suitable for a civil claim, yet somehow expect everyone not to ask why the hell the feds were conducting a criminal investigation of such a massive scope for a civil violation.

I think all this evidence summary really proves is that big content REALLY needs to rethink their whole distribution and sales strategies. I mean ffs, sell to one person for $25 a pop, or sell to 100 people for $1 a pop? It's pretty much spelled out right in the evidence summary: Guys... YOU'RE DOING IT WRONG!

The law only applies to regular people - a sad state of affairs in our supposedly 'free' western society.

A sad state of affairs in the US. There are still western democracies with rule of law and human rights and stuff.

Like New Zealand? The country that rolled over and said "How high?" when the US said "Jump!" and broke its own laws to do it? The country that is not barring all this illegally-gained evidence from trial?

I have written something like that: "on many forums people complain that our video / sound are not in sync... We need to solve this asap!” several times.Usually when I get an email meant to go to someone else. I have to stop this so I don't get extradited to US. :-/

I don't think it's ever been much in contention that the company and man were very likely involved in quasi- or completely-illegal activities, at least in the civil sense.

But the ends do not justify the means. The way this case has been prosecuted has been the very definition of "travesty of justice" or "police state", and I'd rather let Kim Dotcom off a thousand times over than let this case establish a precedent that allows this sort of thing to continue in future.

The most surprising thing about all of this talk about Megaupload and Megavideo was that people were paying for subscriptions. If people are paying for subscriptions to download or watch movies, that means that there is a market out there to make money from if you own the copyrights of that movies.

And the most damming evidence of all - - - - THEY MADE SOME MONEY! {insert loud and dramatically extended gasp}Holy Mother of God! We can't have people running around generating revenue with their businesses.

The most surprising thing about all of this talk about Megaupload and Megavideo was that people were paying for subscriptions. If people are paying for subscriptions to download or watch movies, that means that there is a market out there to make money from if you own the copyrights of that movies.

Netflix?

In more seriousness, the problem is largely one of timing and cost. Is there a market for "same day" streaming/theater releases? Absolutely! Will the byzantine web of contract obligations allow anybody to do that legally? Nope! And if they try, the various associations of theater owners would boycott the studio, essentially killing it outright (unless it's already so small it's basically relegated to indy status anyway).

And just because someone is willing to pay a few bucks for essentially unlimited streaming/downloading of basically every movie in existence that's worth watching doesn't mean it's cost-effective for any given studio to sign on. Kim allegedly made what, a couple million? Maybe even 100 million? That's barely enough to fund one summer hit, and that would have had to be spread amongst all of the studios in order to be directly comparable to mega upload/video. It would be like selling their movies on amazon for $0.15 each. (Actually, probably less, I don't have mega's download #s.)

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So the question isn't "is there a market?" but "is there a market at a price point that's viable to participate in?"

I don't think it's ever been much in contention that the company and man were very likely involved in quasi- or completely-illegal activities, at least in the civil sense.

But the ends do not justify the means.

THANK YOU.

Yeah, copyright holders are scummy, and it remains to be seen how much of this evidence should be inadmissible (sorry gov, it looks like a sizable percentage from here. Most, if not all), but to compare this to a head shop, or to claim that MU is a dumb pipe, which requires at the very least plausible deniability. (labelling pipes as for tobacco only, not getting caught saying otherwise, etc.) is just letting your personal feelings get in the way of the facts. This will be a huge case, but it wouldn't be if MU violating the DMCA was the only issue at hand.

From what I understand Kim Dotcom ran a service that could easily be used for copyright infringement by others. KDC apparently did not do much, if any, personal infringement which is an unrelated matter. So the charge is criminal conspiracy with the actual infringers with no evidence that there was any discussions between the infringers and Megaupload other than routine commercial and technical ones that would have occurred between any user and service provider. If that is the basis of the case, then there is no legal protection against prosecution because you were an innocent service provider who did not participate in the in the illegal activity beyond what your services are. Essentially this criminalizes normal business practices because it is impossible for any business to know what all their customers are doing with the products and services offered.

Mixed feelings - mega corporations misuse copyright law to screw the public, but it is the law and is there for good reasons. And Dotcom drove a coach and horses through it.

Meanwhile Uncle Sam and the local cops have really riled the NZ courts by destroying/tampering with all the evidence, using invalid warrants etc. I don't think the extradition hearing will be a slam dunk - the courts have already kicked it into the long grass just for starters. After that the US courts will have a fair few questions about how much admissible evidence is left. The "above the law" arrogance of the prosecutors deserves to fail

The reference to Youtube is interesting. Indeed, Youtube got its start with piracy: without having basically every TV show or movie you could think of for free (albeit not at spectacular quality) it would never have become the most popular service of its kind worth billions of dollars.

Now Youtube has gotten so big that it is able to live off user-generated content, but it wasn't always so. So in that sense I don't really see how Youtube was any better, except that they eventually went 100% "clean", but that was only after they become the biggest and could afford to.

I hate the American copyright system so much that I want to root for Dotcom. This is especially true beecause he was also been subject to illegal police action.

Unfortunately Dotcom is quite possibly the most annoying dot com millionaire ever to walk the face of the planet. If only we had a more sympathetic martyr.

"The trouble with fighting for human freedom is that one spends most of one's time defending scoundrels. For it is against scoundrels that oppressive laws are first aimed, and oppression must be stopped at the beginning if it is to be stopped at all."

He be kind of an annoying twat, but that doesn't preclude him from enjoying any number of civil liberties and human rights (like having investigators follow protocol and due process)

I'd also like to point out the hypocrisy of US media corporations who make "deals" with actual artists to give them a pissant percentage of profits while keeping the lion's share... and then having the gall to call Dotcom out for doing something not much different and entirely indirect.

The reference to Youtube is interesting. Indeed, Youtube got its start with piracy: without having basically every TV show or movie you could think of for free (albeit not at spectacular quality) it would never have become the most popular service of its kind worth billions of dollars.

Now Youtube has gotten so big that it is able to live off user-generated content, but it wasn't always so. So in that sense I don't really see how Youtube was any better, except that they eventually went 100% "clean", but that was only after they become the biggest and could afford to.

Is there any evidence YouTube was served with valid DMCA takedown notices and didn't comply? Honest question.

I don't think it's ever been much in contention that the company and man were very likely involved in quasi- or completely-illegal activities, at least in the civil sense.

But the ends do not justify the means. The way this case has been prosecuted has been the very definition of "travesty of justice" or "police state", and I'd rather let Kim Dotcom off a thousand times over than let this case establish a precedent that allows this sort of thing to continue in future.

In a situation like this, I think it matters as much HOW he is taken down. This is still a generic storage facility even if there are some shady back room dealings going on. The people that were using this service in good faith should not get screwed just because the owner got arrested.

It's not just Dotcom's rights that can be trampled but every one of his customers.

The idea that the MPAA can launch a successful attack on cloud computing is wrong on a number of levels.

There's a lot of underlying assumption that Dotcom was legitimately acting as a dumb pipe, when it's obvious he was directly involved in allowing and encouraging piracy. He refused to operate according to any legal standards, of which he was obviously aware. He deserves to be penalized; heavily, since he new full well what he was doing was wrong.

That doesn't, however, excuse the manner in which the US gathered the information used against Dotcom. Any evidence derived from the raid--even if it could have been acquired otherwise--should be expunged. I would even argue that new investigators should be brought in, to avoid "residual evidence" (e.g. "I remember that Dotcom had a conversation with these particular dates") to the greatest possible degree, and the investigation restarted from the latest legal point. Yea, that'll harm the investigation...too bad.